US stocks: Gain on oil, but Fed meeting weighs

NEW YORK - US stocks advanced today as the energy sector benefited from rising oil prices. But gains were limited as investors hesitated to place major bets a day before the Federal Reserve's statement on the future direction of interest rates.

Analysts are nearly unanimous that the Fed will raise its target fed funds rate tomorrow, and a majority of analysts are leaning toward a rate increase in August. The wording of the Fed's statement has kept investors uncertain amid lingering concerns that the central bank's credit tightening will slow economic growth and hurt corporate profits.

In otherwise lacklustre trading, oil stocks rose, led by Exxon Mobil Corp., as crude prices rose above US$72. Exxon, the world's biggest publicly traded oil company, rose more than 2 per cent and was the biggest positive influence on both the Dow and the S&P 500.

"Almost every day, energy is either the leader or the worst performer. Today, it is proving to be strongest," said Tim Heekin, director of trading at San Francisco investment bank Thomas Weisel Partners. "Otherwise, it's quiet. People are sitting on their hands." The Dow Jones industrial average gained 48.82 points, or 0.45 per cent, to finish at 10,973.56. The Standard & Poor's 500 Index added 6.80 points, or 0.55 per cent, to end at 1,246. The Nasdaq Composite Index advanced 11.59 points, or 0.55 per cent, to close at 2,111.84.

Trading was moderate on the NYSE, with about 1.49 billion shares changing hands, below last year's daily average of 1.65 billion, while on Nasdaq, about 1.60 billion shares traded, below last year's daily average of 1.80 billion.

Advancing stocks outnumbered declining ones by a ratio of almost 8 to 5 on the NYSE and by about 8 to 7 on Nasdaq.

For the 17th time in two years, the US central bank is expected to lift its benchmark fed funds rate by a quarter-percentage point to 5.25 per cent on Thursday at the end of the two-day meeting. Even more important, the Fed will issue an accompanying statement that may give clues about future rate increases.

US crude oil for August delivery rose 27 cents to settle at US$72.19 a barrel on the New York Mercantile Exchange on concern about heavy US demand for petrol before the July 4 Independence Day holiday. US government weekly inventory data showed US crude oil and petrol supplies fell more than expected last week.

Merrill Lynch today revised upward its price forecast for US crude to US$68.25 a barrel for the second half of 2006 from US$65.50. Merrill also raised its rating on oil producer and refiner Hess Corp. to "buy" from "neutral." Hess stock jumped 4.6 per cent, or US$2.21, to US$50.41 on the New York Stock Exchange.

Exxon Mobil shares climbed 2.5 per cent, or US$1.47, to US$61.12 on the NYSE, while shares of rival Chevron Corp. rose 2.1 per cent, or US$1.26, to US$61.36.

A sharp drop in the shares of Apple Computer Inc. weighed on the Nasdaq Composite Index. The stock of the maker of the iPod digital music player fell 2.5 per cent, or US$1.41, to US$56.02 as some analysts expressed concerns about Apple's outlook.

In the new-issue market, shares of preppy clothing retailer J. Crew Group Inc. soared 27.8 per cent, or US$5.55, to US$25.55 in their debut on the NYSE. The IPO was priced yesterday at US$20 a share.

Helping all three major indexes were shares of Intel Corp. The world's largest semiconductor maker said yesterday it would sell its money-losing communications processor business to Marvell Technology Group Ltd. for US$600 million.

Intel shares, among the components in the Dow, the Nasdaq 100 and the S&P 500, jumped 3.4 per cent, or 61 cents, to US$18.66 in Nasdaq trading.

Marvell shares fell 4.1 per cent, or US$1.82, to US$42.32 on Nasdaq.

- REUTERS